Private jumbo mortgage closings for refinance and increasingly purchase loans are on track to be at their best levels dating back to 2007, due to more and more lenders offering lower down-payment requirements and credit scores to attract more business,
In an about face from just 5 years ago is the news that numerous small lenders, like local banks and credit unions, say they will make portfolio loans to originate 5 to 10 percent down jumbo loans based on information from the Wall Street Journal.
Similar to the early 2000s, as homes appreciate, banks and lenders will loosen their lending guidelines by targeting under-performing segments. In this case, jumbo loans were extremely difficult to get in 2009. Now, jumbo loans are a fairly safe route to take to increase profits as borrowers in the luxury home arena are less likely to default vs. the conventional conforming borrower.
Jumbo loans are mortgages that begin at $417,001 and above; in some of the high cost areas in the country, jumbo loans are $625,501 or higher like coastal regions of California, Hawaii, and certain counties near the nation’s capital in Virginia, Maryland, and Washington. For expert advice on which jumbo loan is right for you, get in touch with Bill
Some mixed housing signals as for the seventh straight week mortgage activity declined while interest rates were up and down, based on information from the Mortgage Bankers Association. MBAA statistics shows mortgage activity dropped 3.7 percent in the week ending Friday July 25th.
During that same week, refinancing activity also fell by 4 percent.
For higher-end buyers in the jumbo loan category for loans above $417,500, there is some good news as rates dipped to 4.64 percent from 4.66 percent. the origination percentage dropped as well to 0.31 from .33.
With the housing market recovery underway due to pent up demand and low interest rates, the need for jumbo loans is increasing too. These type of mortgages are beginning to entice more investors as buyers understand they need a good-sized down payment and credit profile.
FDIC insured national and regional banks continue to originate these loans but on a portfolio basis. Lately, that aspect is turning around. Some facts that support that argument are the number of mortgage being securitized by investors has risen by 400-percent from one year ago from data supplied by Inside Mortgage Finance
Investors purchased approximately four billion dollars of jumbo loans and that figure is $3.5 billion greater than the total amount from the entire year of 2012.
Since the start of 2013, Chase Mortgage and Everbank began issuing non-agency mortgage-backed securities. Their only other competition were two smaller rivals, Credit Suisse and Redwood Trust. Chase has surged from number four to the number two position for closing jumbo loans.
According to report from the National Association of Realtors, homes sold between $750,000 and $1 million increased 41 percent in April from a year ago. The demand will only grow in the jumbo market space as home prices move up in price and the economy improves Affluent homebuyers will have more choices for nice programs as well.
Jumbo loans this time around, unlike the housing boom years are being underwritten with scrutiny. There is no cutting corners for anyone applying for high-end financing. Borrowers can expect their mortgage originators to request full documentation o pass the stricter underwriting criteria. Bank officials claim that these are loans are supported by verifying paperwork such as bank statements, source of down payments, so and borrowers typically have higher FICO scores so these are excellent loan products and an attractive investment for people seeking to obtain a higher yield.
Because additional funds from investment firms are persisting in growing the jumbo mortgage market, mortgage loan originators are in a better position to increase their loan volume.
Lenders have increased the amount of fixed rate mortgage due to the higher demand from the secondary market. The risk to lenders is decreasing when mortgage-backed securities are bought by investors. From a report by Kroll Bond Ratings, US$ 6bn has been bought by Redwood Trust dating back to 2010.
The mortgage companies who are utilizing Redwood Trusts mortgages the most are Cole Taylor, Everbank, First Republic, Prime Lending, Shore Financial, and WJ Bradley. As expected, the high-cost areas in the country which include Boston, New York, Los Angeles, San Diego and San Francisco had the most jumbo loan activity.
Additional lenders are coming into the field as well like Stonegate Mortgage which claims it has funded US$ 115M for buying jumbo mortgages. Other companies like PennyMac and Impac Mortgage have been consistent in the jumbo market have had funding in the 2013 year too.
Can borrowers get a jumbo mortgage with less than 20% down?
It’s is possible but it is not typical to get a jumbo mortgage with less than a 20% down payment. There are a few lenders who will approve such as loan based on the condition the borrower agrees to pay private mortgage insurance. he borrower’s credit score and the amount of their down payment will determine the cost along with other variables, and it may be as high as 1% of the loan amount annually.
Among the large banks which offer below 20-percent are Citi and the Bank of New York Mellon which provide as much as 100% financing to their account holders usually in their wealth management or private banking divisions. The terms ware different from one bank to the next but they frequently require two types of collateral. Normally, 60% to 80% of the loan will be secured to the property value while the remaining 20% to 40% can be pegged to an investment account they have with the bank. In this situation, the borrower can get around putting money down as a down payment.
When the housing meltdown hit everyone back in 2008, the majority of lenders basically ceased originating jumbo loans for high-cost areas.
In 2013, with rates at decade lows, an increasing number of banks and lenders are returning to the jumbo loan market since demand for housing has jumped in the past 9-to-12 months.
Most lenders look back one year ago and see a huge difference in availability of programs. The market just continues to improve and it is warm welcome to all in the real estate industry. In many neighborhoods, those vacant lots within developed communities now have construction in the works.
While the products have increased for consumers, there are still real obstacles that must be overcome prior to being able to qualify for these loans.
If you are doing a refinance, expect to have at least 20% in equity and you’ll need 20% for a down payment as well. There is not much flexibility in this qualification unless you find something from a niche portfolio lender.
Borrowers will also need to show prove they are able to make the monthly payments of that these loans require. So, you should expect to:
- Have official records of your income and assets dating back several years.
- Have a credit score with a minimum of 720 (some lenders will require 740)
- Demonstrate that their monthly mortgage payments will be less than 36% to 38% of their gross income.
- Show that all your monthly payments, which encompasses credit cards, car loans, will not be more than 41% of your gross monthly income.
- Show you have 10% of the amount you are borrowing in savings or brokerage accounts that can be used to make your mortgage payments in case you become unemployed.
If borrowers are able to demonstrate that there is an opportunity to secure some of the best jumbo loan rates we’ve witnessed in in the past few years.